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Submission: Enact a broad-based and avoidance-proof digital services tax

21 June 2021 By DT Cochrane, Toby Sanger

Toby Sanger / DT Cochrane

Toby Sanger DT Cochrane Canadians for Tax Fairness

To Finance Canada regarding the Digital Services Tax Consultation, 18 June 2021 (addendum 22 February 2022):

Canadians for Tax Fairness (C4TF) very much welcomes the proposed introduction of a digital services tax (DST). We have strongly urged the federal government to introduce a digital services tax for many years—and we commend the government for finally committing to doing so.

We are heartened that the Finance Minister has committed to proceed with the DST next year and not delay because of ongoing OECD negotiations to reform international corporate tax rules. If individual countries had not taken steps to introduce DSTs, it is unlikely there would be sufficient incentives and support necessary to achieve meaningful multilateral corporate tax reform through the OECD negotiations.



While a tax on corporate revenues—rather than on corporate profits or on sales—may seem unconventional, it has become necessary. This is because of, in the words of former IMF chief Christine Lagarde, “the ease with which multinationals seem to be able to avoid tax.”[i] Multinational e-commerce corporations have avoided paying tax through many different forms of tax avoidance.[ii] Digital services have facilitated this avoidance because revenue can be easily relocated from where sales occur.

A broad-based and effective DST would meet the Liberal government’s 2019 election commitment to “make sure that multinational tech giants pay corporate tax on the revenue they generate in Canada” and subsequent ministerial mandate letters.[iii] Canadian governments have lost billions of dollars in revenue because of tax preferences that disproportionately benefited multinational corporations (MNCs) for many years. This has deformed our economy, costing untold numbers of jobs, businesses and important media and cultural enterprises in communities across the country.

However, to achieve its objectives, it is critical that the DST be broad-based, effectively implemented and enforced.

As proposed in Budget 2021, Canada’s DST will apply to foreign and domestic businesses with global revenue of over €750 million and annual revenue from Canadian users of more than $20 million in the following areas:

  • on-line marketplaces
  • social media
  • on-line advertising, and
  • user data

We recognize that these revenue thresholds are consistent with many other DSTs around the world. However, they have been criticized and subject to countervailing actions by the United States government, which considers them to unfairly target U.S. corporations.[iv] While this targeting of US corporations may have been considered opportune when the United States government was not productively engaged in the OECD’s multilateral negotiations, under the Biden administration the United States is now leading these international negotiations for reform.

It would be much more effective—in terms of the comprehensiveness, integrity, viability, strategic value, economic impact, and revenues raised—for Canada’s DST to be broader-based with lower thresholds and a greater scope.



The DST as proposed explicitly excludes the sale, licensing and streaming of digital content, as well as the sale of other digital goods and services. This is a giant, glaring hole. It would exclude revenues associated with Netflix, Amazon Prime, Apple Music, Spotify and many more services. Media streaming companies are expanding at a rapid pace, ferociously taking over these markets—doubling every three years—eliminating smaller competitors and using customer data to help do this.[v] It is unfair that much smaller domestic broadcasters, music producers, video rental stores and others pay more in Canadian corporate tax than these multinational tech giants.

Excluding streaming content and the sale of digital goods and services would have several harmful consequences. First, it would mean that the government will fail to fully meet its commitment in the 2019 election to “make sure that multinational tech giants pay corporate tax on the revenue they generate in Canada.” Second, it would continue to provide preferential benefits to these tech giants at the expense of domestic competitors. Third, it would significantly reduce the potential revenues. Finally, it would invite countervailing action by the United States government, which explicitly cited the exclusion of streaming services and businesses such as Spotify as reasons why the DSTs of other countries are discriminatory and unfairly target United States corporations.[vi]  At a forecasted $4 billion in revenues just for “Over The Top” television-type streaming services in 2023, including these services would increase DST revenues by well over $100 million annually. 



There is also no clear reason for excluding revenues from digital software or cloud computing and storage. Companies like Adobe and Microsoft are increasingly delivering software digitally via a subscription model. Google and Amazon derive significant revenue from Google Cloud Services and Amazon Web Services, respectively. Part of the revenue is derived from gathering of user data. While that data is sometimes directly monetized, it is often indirectly valued via other services provided to users. It would be difficult, if not impossible, to parse the revenue attributable to user data from that attributable to the software.

We are encouraged that the DST, as currently described, will cover both business-to-consumer and business-to-business revenue. However, digital software is growing more important for businesses, and displacing other business inputs that would be covered by existing taxes. The providers of digital software are overwhelmingly foreign companies, while the displaced inputs are more likely to come from domestic providers. Giving unfair advantage to foreign providers of these services not only reduces government revenues, it also has privacy and security implications, as the data is being stored on foreign soils. A DST is not a cure-all for this issue, but it does slightly rebalance the sector.



A narrower scope will make the DST less effective as the digital economy continues to evolve. That evolution includes the spread into companies typically associated with the non-digital economy.  As countries involved in the OECD BEPS process have agreed, the digital economy can’t be “ring-fenced”.[vii]

Practices such as data monetization are being adopted by firms in more traditional sectors; this process has been called ‘Big Techification’.[viii] For example, credit card company Visa, bricks-and-mortar giant Walmart, and even the tractor manufacturer John Deere, are increasing efforts to monetize user data.[ix] To be most effective, the tax must cover digital service revenues of all companies. Related to this, internal transactions should be included in the tax. This will be explained more fully below.

We recognize that it will be difficult to parse revenue of digital services from the revenue of more traditional sources. But that is an important part of the problem that the BEPS measures will hopefully address. MNCs have exploited this difficulty as part of tax avoidance. Many of the key assets of digital services are intangible and easily moved to low tax jurisdictions. Therefore, it is in the interest of MNCs to claim more revenue is due to digital services. A DST counters that incentive.



Uber has been able to avoid paying taxes through many means, including shifting of its intellectual property assets. A report from CICTAR (Centre for International Corporate Tax Accountability and Research) showed that the company is using intangible assets owned by a Dutch subsidiary to shelter billions in global revenue.[x] It is notable that Uber Canada is a subsidiary of the Dutch company.[xi]

Both Uber and Lyft claim that they are not transportation companies, which allows them to avoid numerous tax and regulatory responsibilities. Instead, the two companies insist, their business involves the operation of an on-line marketplace that connects drivers with riders. Uber very prominently describes its service as a “marketplace.”[xii]. This would appear to firmly fall under the ‘on-line marketplace’ category of the DST’s scope. While we think that these ride hailing companies should be classed as employers, as long as they insist that they are not and claim they are on-line marketplaces, they and other similar platforms such as AirBnB should be fully subject to the DST. Uber’s service and corporate structure was designed to avoid taxes on all different levels even though its services are entirely dependent on publicly funded infrastructure--and they should certainly contribute to funding of this infrastructure.  

We do not know how much revenue Uber collects from Canadian sources as they don’t publish this information separately. However, a forthcoming report from C4TF estimates that Uber and Lyft collected about $2 billion in revenue in 2019 just from the ride-hailing component of their businesses. Adjusting this estimate to include Uber’s food delivery service, we calculate the DST on the two companies would generate about $64 million.  This would be only a portion of the $135 million that we estimate Uber and Lyft avoid paying in payroll and corporate taxes each year in Canada.[xiii]

Our estimate of Uber and Lyft’s Canadian revenues from ride-hailing is based on the total fare before sales tax. However, both companies only report in their financial disclosures a portion of the fare because they insist their revenue is only what is paid by drivers for use of their platform. Yet, the fares paid by riders go to the companies, which then periodically remunerate drivers. The DST should apply to the entire value of what Uber and Lyft call “gross booking”, excluding sales taxes, as that is the full revenue of the digital service they offer. The DST must be designed to ensure that other companies are not able to avoid a substantial portion of this tax with accounting maneuvers similar to Uber and Lyft.



As stated above, the DST should also be applied to internal transactions. The intangibility of digital service assets makes them especially useful for shifting profits. Traditional companies can use digital services as a way to reduce their taxes. One simplified example is described in the box to the right.

Related to the issue of internal transactions is the exclusion of “revenue in respect of the storage or shipping of tangible goods sold through the marketplace.” This is highly relevant for Amazon. As described, the exception is overly vague. It leaves too much control to evaluate what constitutes a “reasonable rate of compensation” with the companies. While the exception is reasonable, in as much as these activities are covered by other taxes, care must be taken to ensure companies do not turn the exception into a loophole.


Imagine a hypothetical tractor company, Bulle.

    In its first year in Canada, Bulle sells 10 thousand tractors for $100,000 each, with a 20% profit margin. The $200 million in profit would result in corporate income taxes (CIT) of about $53 million.

    Imagine that in year two, Bulle Canada sells tractors that collect usage data, which they aggregate and sell to the farmers. They again sell 10 thousand tractors. But this year, they charge $80,000 for the tractor, and $20,000 for the data. They are selling the tractor at cost. There are no profits, and no CIT to be paid. What about the $20,000? Bulle Canada attributes that revenue to the Dutch subsidiary that owns the assets for collecting and transforming the data. So, there is no CIT on that either.

    With the DST, Bulle Canada would face a tax bill of just $6 million on the data selling revenue, so it is still well ahead. But it can do better for itself.

    In year three, Bulle Canada again sells the tractors for $100,000. But now the $20,000 for the data is added to the wholesale cost of the tractor, which gets paid by the parent company to the Dutch subsidiary. Unless the DST applies to intra-company transactions, Bulle has sidestepped the DST as well as the CIT.



We are concerned that having the DST only apply to revenue from series of on-line advertisements that are 90 percent or more shown to viewers in Canada will make the tax too easy to avoid.  Instead the DST should be applied proportionally to series of on-line advertisements above a much lower threshold.

Applying a DST to revenues from on-line advertising should also be combined with eliminating the business deductibility of advertising expenses on foreign internet platforms under Section 19 of the Income Tax Act; otherwise these provisions will be working at cross-purposes. The Parliamentary Budget Office has estimated that eliminating this would increase federal revenues by more than $1 billion annually, considerably more than the proposed DST would generate in revenues.[xiv]



We also strongly urge the Canadian government to require greater corporate transparency in connection with this initiative. The federal government is now collecting country-by-country financial information from multinational corporations as a result of the OECD BEPS process. This will help prevent MNCs from avoiding taxes and assist in the administration of the DST.  These country-by-country reports should also be made publicly available.  It is disturbing for many that the public simply doesn’t know whether and how much these large corporations pay in tax in different jurisdictions.  A number of other countries, including the European Union, are moving ahead with public disclosure of country-by-country financial disclosures by MNCs, while Australia and other countries publish basic corporate financial and tax information for companies with revenues in excess of $100 million annually.



We’re strongly supportive of the government’s plans to introduce a Digital Services Tax, after having advocated for one for many years, and commend the federal government for proceeding with it.  It will help ensure large multinational tech corporations pay their fair share of taxes in Canada, and help stem the economic damage caused by providing tax preferences to large multinational corporations for many years.

However, we urge the federal government to broaden the base of this tax so that it also covers revenue from streaming services, and the sale of other digital services, including cloud computing and software subscriptions. This could help prevent Canada’s DST from being subject to countervailing action by the United States. We also urge the government to take steps to ensure the DST isn’t avoided through strategic accounting and internal transactions, and enhance corporate transparency with public country-by-country reporting so Canadians can be assured that these large corporations are actually paying their fair share of taxes.



Submitted on 22 February 2022.

Part 1

C4TF is pleased that the Government of Canada continues to advance the DST. The extreme growth of the transnational digital economy is creating challenges for governments around the world. A DST is a reasonable—and widely advocated— response to these challenges. Every indicator points to continued growth of the digital giants. We need to legislate and implement a robust DST as soon as possible.

Part 2

C4TF is encouraged that the scope of the DST has been broadened. Our original submission challenged the plan outlined in Budget Annex 7 to exclude “the sale of goods and services (including the sale, licensing or streaming of digital content such as audio, video, games, software, e-books, newspapers and magazines) by a seller on its own account”. As we noted, this exclusion would leave substantial revenue uncovered, including the rapidly increasing use of subscriptions for digital software. The transnational providers of these goods and services can too easily avoid Canadian taxes. In addition to depriving Canadian governments of tax revenue, this creates a massive disadvantage for existing or potential domestic competitors. The removal of this exclusion from the description of the DST’s scope is most welcome.

Part 3

C4TF is very concerned that implementation of the DST is being made contingent on the OECD Inclusive Framework on Base Erosion and Profit Sharing (IF). There are encouraging features of the two pillars of the IF. However, there are many weaknesses that make it a poor substitute for a domestic DST. 

First, calculations by C4TF indicate that many of the digital giants will pay much less tax under BEPS Pillar One than they would with a DST. For example, because Pillar One only includes companies with a profit margin greater than 10%, it would exclude Amazon. This is confounding given the undeniable market power that Amazon has gained in recent years, which comes at the expense of many domestic retailers. Unfortunately, we lack definitive information on Amazon’s Canadian revenues, profits, and taxes. However, a reasonable estimate suggests a DST would generate $175 million in revenue from Amazon. Under Pillar One, Canada would share in $0 collected from Amazon.

Second, by making the DST contingent on the IF, the Government of Canada is throwing its international clout behind the framework’s flawed design. The Independent Commission for the Reform of International Corporate Taxation (ICRIT) called the design a “missed opportunity” because it fails to properly address the scope and scale of transnational corporate tax avoidance. This avoidance harms all countries. But it especially harms countries with less robust tax systems and smaller tax bases. 

The IF negotiations have been an historically important confrontation of transnational tax avoidance. Unfortunately, the outcome of this most recent iteration is a plan that continues to disproportionately benefit powerful corporations at the expense of governments. 

Part 4

Canada should reject the requirement that signatories to the IF remove digital services taxes. It can lead on that effort by implementing the DST regardless of the IF’s status. It should also support other countries, such as Nigeria and India, in their efforts to maintain a DST. The primary opponent of unilateral DSTs has been the United States, which complains the taxes target U.S. companies. As we noted in our original submission, a broader scope would address this complaint.

Part 5

Canada should take a leading role to strengthen the IF. Pillars One and Two could become more effective tax measures, rather than just encouraging signs of international cooperation. A stronger IF would benefit Canada. But it would benefit developing and middle-income countries even more. There is no reason for Canada not to step up.




[i] Christine Lagarde, Corporate Taxation in the Global Economy, 29 March 2019.

[ii] Fair Tax Mark, The Silicon Six and their $100 billion global tax gap, December 2019.

[iii]  Liberal Party of Canada, Forward: A Real Plan for the Middle Class,” 2019, p. 79.

[iv] Office of the United States Trade Representative (USTR), Section 301 Investigations on Digital Services Taxes against numerous countries.

[v] Mobile Syrup, “Canadians spent $2.05 billion on OTT services in 2020: report”, May 17, 2021.

[vi] USTR op cit.

[vii] OECD. 2014. Addressing the Tax Challenges of the Digital Economy. OECD/G20 Base Erosion and Profit Shifting Project. OECD Publishing.

[viii] Hendrikse, Reijer, Ilke Adriaans, Tobias J Klinge, and Rodrigo Fernandez. Forthcoming. “Big Techification of Everything.” Science as Culture.

[ix] Gandhi, Suketu, Bharath Thota, Renata Kuchembuck, and Joshua Swartz. 2018. “Demystifying Data Monetization.” MIT Sloan Management Review. November 27, 2018.; “GoodData Announces Strategic Partnership and Investment from Visa.” 2020. GlobeNewswire News Room. May 20, 2020.; Neff, Jack. 2021. “Walmart Has Some Data They’d like to Sell You.” AdAge. June 15, 2021.

[x] Taken for a Ride: Uber’s Global Tax Dodging Through Dutch Shell Companies. 2021. Centre for International Corporate Tax Accountability and Research.

[xi] See Uber Canada Inc.’s Lobbyist Registry:

[xii] See

[xiii] Canadians for Tax Fairness, Uber Low Taxes Lyft Ridesharing Revenue, forthcoming.

[xiv] Parliamentary Budget Officer.  Cost Estimate of Election Campaign Proposal, New Digital Services Tax and Deductibility of Advertising Expenses by Canadian Resident Businesses, 11 October 2019.



Toby Sanger / DT Cochrane